Investors often overlook SEC filings, and it is the job of the 10Q Detective to dig through businesses’ 8-K and 10-Q SEC filings, looking for financial statement ‘soft spots,'(depreciation policies, warranty reserves, and restructuring charges, etc.)that may materially impact Quality of Earnings.

Sunday, January 06, 2008

Trading Alerts: Monday, January 7, 2007

Alcoa Inc. (AA-$34.87) kicks off the fourth-quarter earnings season for blue-chip companies this week. Impacted by falling metal prices and the weak dollar, the aluminum giant likely won't provide a banner kickoff to the season when it reports on Wednesday. Deutsche Bank this past week lowered its earnings forecast for Alcoa's fourth quarter to 30 cents a share from 76 cents a share.

Amgen (AMGN-$44.80) will present at the 26th annual JP Morgan Healthcare Conference on Tuesday. Given the FDA’s vocal concerns on studies which found patients with breast or advanced cervical cancer who were treated with anemia medicines died sooner, or had more rapid tumor growth, than similar patients who were not given the drugs, investors will be looking for commentary from management on the future of its anti-anemia drug franchise—Aranesp, Epogen and Procrit (marketed by Ortho Biotech, a Johnson & Johnson unit, under a license agreement).

Officials at Bear Stearns (BSC-78.87) are expected to meet in the middle of January with U.S. prosecutors to discuss the collapse of two of its hedge funds, as first reported by CNBC.

Celgene Corp. (CELG-$49.65), best known for its cancer treatments Thalomid (thalidomide) and Revlimid, will present fourth quarter and FY 2008 guidance during a presentation at the JP Morgan Healthcare Conference on Monday, January 7, 2008 at 11:30 am EST. Analysts polled by Thomson Financial are expecting the drugmaker to report quarterly share-net of 31 cents on revenue of $381.91 million. Investors will be listening for updates on its anti-inflammatory pipeline and the ongoing Pharmion merger, too. Pharmion's buyout will add blood cancer treatment Vidaza, the first drug approved by the FDA for treatment of myelodysplastic syndromes, to Celgene's product offerings.

Diversified global growth prospects remain favorable for Cisco Systems (CSCO-$26.12), and the quantitative model employed by the Forbes Growth Investor suggests that it is a good time to buy shares in the leading global provider of Internet Protocol (IP) network solutions.

The stock of Citigroup (C-$28.25) endured one of its worst annual performances on record last year and was the worst performing Dow component in 2007. Its shares finished the year down 47 percent. Some analysts, however, argue that the financial services giant is at an attractive price right now for long-term investors - given the company's earnings potential and its global presence at a time when overseas economies are enjoying robust growth.

Constellation Brands, Inc. (STZ-$22.78), will report financial results for its fiscal third quarter ended Nov. 30, 2007, on Tuesday, before the open of U.S. markets. The imported beer, wine, and spirits distributor has about 250 brands in its portfolio, including Corona Extra and St. Pauli Girl, Clos du Bois, Robert Mondavi and Ravenswood wines, and Black Velvet Canadian Whisky.

The Company will fall shy of the average analysts’ estimate of 55 cents a share, predicts Banc of America Securities analyst Bryan Spillane in a client note. Investors will be watching cash flow trends, too, for STZ’s leverage has increased due to successive debt-financed acquisitions and stock repurchases. Albeit, the company currently maintains adequate liquidity and access to the capital markets, required debt repayment over the next five years is expected to be well beyond STZ's cash-generating capabilities, according to Fitch Ratings service.

As cheap as Darden Restaurants (DRI-$25.59), whose brands include Red Lobster, Olive Garden, Bahama Breeze, Seasons 52, The Capital Grille and Longhorn Steakhouse chains, may look to some on the Street, it’s only going to get cheaper, said Jim Cramer on his Friday “Mad Money” show on CNBC. “The stock of the casual diner operator should continue its downward tumble – even more than the 11-point drop since its December second-quarter earnings miss – thanks to sky-high corn prices, a business levered to a lagging U.S. economy and failed brand concepts like Bahama Breeze and Smokey Bones.” [Ed. note. Sun Capital Partners Inc. announced Thursday one of its affiliate companies closed on the acquisition of the Smokey Bones Barbeque & Grill chain.]

deCODE genetics (DCGN-$3.51) reported on Sunday that the genetic variant on chromosome 9p21 that the company has linked to increased risk of heart attack is also associated with up to 70% increase in risk of abdominal aortic aneurysm and intracranial aneurysm.

Although many in the airline trade believe the stars have aligned for mainline consolidation to occur, industry sources tell dealReporter that a tie-up of Delta Air Lines (DAL-$13.37) and United Airlines (UAUA-$33.15) may not be realized despite discussions between the carriers.

Home Solutions of America, Inc. (HSOA-$0.95) said late Friday it has withdrawn its appeal to remain listed on the Nasdaq National Market. As a result, its common stock would be delisted from Nasdaq, effective Monday. The provider of restoration and construction services expects its shares will be eligible for quotation on the Pink Sheets Electronic Quotation System.

Immucor, Inc. (BLUD-$33.68), a global leader in providing automated instrument-reagent systems to the blood transfusion industry, will announce its second quarter earnings on Monday, January 7, 2008, after the close of regular trading hours. Analysts surveyed by Thomson Financial forecast earnings of $0.24 a share, on $61.5 million in revenue. Given a history of conservative corporate guidance, Piper Jaffray believes the diagnostic testing provider remains a "beat-and-raise" story.

On Friday, chip giant Intel Corp. (INTC-$22.67) suffered another downgrade, this time from JP Morgan analyst Christopher Danely, who said high inventory levels and soft demand could weigh on the chip-maker in the near-term. Analyst Danely downgraded the stock from "Overweight" to "Neutral."

KB Homes (KBH-$18.67) releases its quarterly earnings report on Tuesday, which could offer further insight into whether the housing market is near its bottom or has much further to fall. In an industry still struggling with excess capacity, the homebuilder is expected to post a loss of $1.08 per share, on average. Nonetheless, Morningstar believes KB Home's recent strategy of selling noncore assets and using the proceeds to pay down debt should ensure that the company survives the current downturn.

U.S. video game industry sales growth is expected to slow in 2008 as accelerated demand for software is tempered by a decline in hardware revenue, the Consumer Electronics Association said on Saturday. Video game console makers include software giant Microsoft (MSFT-$34.38), manufacturer of the Xbox 360, and its rivals Nintendo (NTDOF-$578.00) and Sony (SNE-$52.42), console makers of Wii and PlayStation 3, respectively.

Motorola Inc. (MOT-$15.07) said late Friday that it laid of an additional 1,600 employees during the fourth quarter in a company-wide restructuring effort. In a filing with the Securities and Exchange Commission, the wireless device maker said it would take a pre-tax charge of about $90 million in the fourth quarter related to the layoffs.

Despite continuing problems in the housing market, Standard & Poor thinks online real-estate company Move (MOVE-$2.26) will outperform the S&P 500 in 2008: “We expect real-estate advertisers to spend more of their advertising/marketing budgets online, and expect Move to benefit. We like the recent additions to the management team, new priorities and investment discipline, and greater focus on delivering shareholder value. Move also has what we consider a strong balance sheet. We remind readers that this stock isn't for the faint of heart.”

MRV Communications’ (MRVC-$2.11) plan to take its optical-equipment business Source Photonics Inc. public should unlock the network equipment company's "tremendous value," says Leo Saraceno, director of North American equities at Sun Life Financial, in a January 6 interview with Barron’s.

Shares in NeuStar (NSR-$28.33), which delivers critical clearinghouse services to more than 7,300 communications service providers in North America and Europe, have dropped more than 20% since mid-October and ended down 11% for 2007. However, according to the quantitative model employed by the Forbes Growth Investor, the stock is due for a rebound.

Mortgage and vehicle fleet company PHH Corp. (PHH-$15.98) said late Friday it received a $50 million reverse termination fee from Blackstone Capital Partners, a private equity fund affiliated with the Blackstone Group, in connection with the termination of the merger agreement between PHH and General Electric Capital Corp.

ProLogis (PLD-57.18), an owner, operator and developer of warehouse and distribution centers, could see its share price climb more than 20 percent in the next year if the global economy remains stable, according to the January 6 edition of Barron's.

Realty Income Corporation (O-$22.65), which engages in the acquisition and ownership of commercial retail real estate properties in the United States, lost 16.2% in value last week on investor fears that the REIT’s largest tenant, family-style dining chain Buffets Inc., is on the brink of bankruptcy, which could affect leases already in place. In a research note, however, Cantor Fitzgerald said Buffet's financial troubles are old news. The financial services firm said if Buffet's filed Chapter 11, a majority of the Realty Income leases with Buffet's would be affirmed, and continue to pay rent.

Schnitzer Steel Industries, Inc. (SCHN-$63.65), a metals recycler and auto parts and specialty steel products manufacturer, will release first quarter 2008 earnings before the market opens on Monday. Management’s outlook for the 1Q:08—despite the seasonal weakness of its 1Q—is that “it will be significantly better than in prior years, even if it might not be as strong as the second half of 2007.” Analysts surveyed by Thomson Financial forecast earnings of $0.99 a share, on average.

Computer manufacturer and seller Systemax Inc. (SYX-$18.00) said Sunday it has agreed to take over as many as 16 CompUSA stores from the recently sold electronics retailer.

It's contract-renewal time for companies with oil-rig drillers for hire. But Houston's Transocean (RIG-$142.46), which focuses on deepwater and harsh-environment services, has already secured contracts to 2010. Earnings could jump from $8.32 a share in 2007 to $14.14 this year and to $19.74 by 2010, says Kurt Hallead of RBC Capital Markets. He says the stock is undervalued based on its historical price-earnings ratio of 18. His 12-month target: 163. "No other driller has the same backlog," he says.

Transocean will pay down $5.5 billion in debt by yearend. Robert MacKenzie of Friedman, Billings, Ramsey notes that management has been less aggressive than competitors in asking for higher rates and has room to hike prices. He sees the stock at 172 in 12 months, according to “Inside Wall Street” (BusinessWeek).

Does the prospect of a restructuring loom in 2008 for Internet infrastructure and online security provider VeriSign (VRSN-$35.82)? Standard & Poor expects the Domain Name System (DNS) gatekeeper (servers that support the .com and .net top-level domains) to exit the content delivery network business, and sell its peer-to-peer-focused operations to a strategic buyer looking to diversify its offerings and gain market share.

Editor David J. Phillips does not hold a financial interest in any stocks mentioned in this article. The 10Q Detective has a Full Disclosure Policy.

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Prior to founding the 10Q Detective, I held equity analyst positions with three brokerage firms and published the investment newsletter e-Growth Profit Letter - dedicated to uncovering companies with innovative, proprietary technologies in a range of industries. My work has been published in The Dick Davis Digest, The Bull & Bear Financial Report, BusinessWeek, CBS Interactive, Forbes, Kiplingers Personal Finance, MSN Money, TheStreet.com, 24/7 Wall Street, The Wall St. Journal, The International Herald Tribune, and Investors Business Daily.
The 10Q Detective is recommended as a 'Must-Read' money blog in Kiplingers (Oct. 2006 & May 2008), Washington Post (May 2009); a 'Best of Financial Blog' by BusinessWeek (Feb. 2007 & April 2008),a 'Smart Stop' by The Journal of Accountancy (March 2008); 'Top 25' by Time magazine, a 'Top 50 Money Blog' by CurrencyTrading.net (April 2008); and, a 2011 LexisNexis Business Law Blog Nominee.